PRC manager shortage hits healthcare sector

Private equity can add significant value to China healthcare investments by recruiting experienced international managers.

China has an acute shortage of healthcare management professionals, presenting challenges for private equity firms invested in the increasingly popular sector, according to industry sources.

“Practicing medicine is very different from managing hospitals,” explained Lawrence Wang, managing director at Primavera Capital Management. It’s a simple fact that many Chinese medical professionals don’t realise – in sharp contrast to the US, where there are masters degree programs devoted specifically to hospital administration, he added.

Primavera has an undisclosed investment in a hospital and a minority stake in Chemspec International, a manufacturer of specialty chemicals including some medical drugs.

Elaine Wong, partner at Hao Capital, believes the primary value private equity can add to healthcare in China is not capital, but international access to managers, technology and medical research. “Most companies by themselves, even with more money, can’t solve the problem of lack of access to talent,” she said.

However, recruiting internationally can be challenging, Primavera’s Wang adds. His firm prefers to hire professionals that are familiar with Western healthcare standards, but also have a couple of years operating experience in China and can speak Mandarin. Such individuals are hard to find, he said.

China’s small pool of seasoned management talent is due to the relatively new modern healthcare sector in China, which has been developing for only 15 years, according to Hao Capital’s Wong.

In one of Hao’s investments in a healthcare IT company, in which it has a 100 percent stake, the private equity firm brought in international management such as a new chief executive, chief financial officer and head of research and development.

“Their experience gave everyone on the R&D team, as well as customers, the confidence that this company could deliver on such a complex product,” Wong said. The outside executives also helped the company expand across China and contributed to an increase in gross profit margin by 20 percent over a two-year period, she added.

China’s healthcare sector has become an increasingly popular destination for private equity in the past few years, as regulations surrounding the sector have relaxed. Private equity investments grew to $665 million across 29 deals last year, up from $493 million invested across 37 deals in 2011, according to data from Thomson Reuters.